When looking at marketing concepts, you’ll inevitably encounter the abbreviation “CPA.” What is CPA in marketing? Technically, this acronym means “cost per acquisition”, i.e., the money you spend to acquire a new customer. It can be a finite amount, as in you’ll pay a website $20 per customer they refer to you. Or, it can be a metric you calculate, like you’re spending $10, on average, to acquire a customer through Google Ads.

While cost per acquisition is the technical definition of the acronym, it’s more accurate to say it’s cost per action. An acquisition is one action – a sign-up on your website, download, or click-through are all other actions you could track. 

Therefore, the CPA marketing definition is a marketing strategy targeted towards a particular action. Your CPA metric is one of the most essential marketing metrics you can track. 

To understand more about CPA advertising, including how to use it to your advantage, let’s learn about the CPA marketing meaning and strategies.

How to Calculate CPA in Marketing?

Now that CPA is a known definition, the next question marketers should ask is how to calculate CPA in digital marketing.

Fortunately for marketers, CPA is one of the most straightforward metrics to calculate. Take all the money you spend on advertising. That might include search ads (like Google Ads), paid website placements, SEO costs, and more. Take all the money you spent on digital advertising in a particular period and divide it by the number of customers you acquired in that same timeframe. That’s all there is to it!

For example, suppose you spent $3,000 on marketing over the past month. You received 20 sales of your new digitally downloadable software package. Your CPA would be $3,000 / 20 = $150. Or, put another way, it costs you $150 to acquire one customer. If you’re selling your software for $1,000, that might be a profitable business. If you sell it for $10, you’re spending more money to gain a customer than you’re making.

This example is straightforward to illustrate an important point: knowing your CPA is crucial to understanding if your marketing is working well or if improvements are necessary. If you spend enough money, you can usually find a customer to convert, but the key to a successful marketing campaign is generating more revenue than your costs.

Now that you know how to calculate CPA in marketing, the next step is understanding what a good CPA is.

What is a Good CPA in Marketing?

Knowing what is a good CPA is often challenging for marketers. Ultimately, what is and isn’t a good CPA is often industry and product-specific. One business may have to spend a fortune to acquire an enterprise customer with lucrative contracts that run in the thousands, while another company may need to keep its CPA at $1 because it has low margins on all its products.

There are, however, some hints that marketers can use to determine whether a campaign’s CPA is healthy.

First, the most obvious sign of a campaign’s CPA health is the cost per action relative to the average order value (AOV) or lifetime customer value (LTV).

For a product-based or e-commerce company, average order volume is the average amount someone orders directly attributable to your marketing campaign. For example, a soap company may have an average order of $100 resulting from a $20 CPA. That’s a good sign of a healthy scenario and campaign.

A different metric is usually necessary for a subscription-based service or product. You may spend $20 to get a single action: someone signing up for a one-month recurring subscription at $10 per month. That’s initially a loss, but you can use your churn rate and average subscription duration to calculate its true profitability. If customers stick with your service for a year, on average, you’d be spending $20 to earn $120 over the year. Again, that’s likely a healthy campaign, indicative of a good use of your company’s marketing budget.

However, if you spend $100 to get a customer to do one action – buy an average of $50 worth of product from your website – you are most definitely looking at an unhealthy campaign that needs dire tweaks.

In general, striking the right CPA requires balance. According to Search Engine Journal, it should be high enough to maintain about 65% or 70% of the top impression share while still being low enough to maintain sufficient gross margins. In other words, your CPA should be high enough to get a consistent, steady flow of customers while simultaneously being low enough to maintain margins. Finding that right balance is where the marketer’s skill lies.

How to Get Started in CPA Marketing?

You likely know of many different forms of advertising, including CPC (cost-per-click) and CPM (cost-per-thousand-impressions). CPA marketing is best when you know your audience and have a defined action plan you want a prospective customer to take. For example, CPA marketing is excellent when trying to sell a new product you’ve just invented. In contrast, CPM marketing is better for raising brand awareness as you’re less concerned about the click or purchase and more about getting your name in front of customers.

You can use CPA marketing for obscure scenarios, like signing up for a newsletter or subscribing to a promotional email list. However, you’ll have to assign the correct value to each outcome in these scenarios. Subscribing to a newsletter may not have inherent value, but suppose 30 out of 100 people buy $100 products per monthly email you send. One sign-up could be worth $400 per year since, on average, that customer will buy $100 of your products per three emails you send.

The Relationship Between Conversion Rate and Cost Per Action

It’s worth noting that there is a direct correlation between your marketing campaign’s cost per action and its conversion rate. The easier it is to convert leads to paying customers, the lower your overall cost per action. Conversely, the harder it is to convert, the higher your overall CPA. This point may be intuitive, but it’s worth highlighting – a CPA campaign can be made or broken by the landing page.

Unlike CPC advertising, where you pay per click, tracking cost per action means that a lot of your campaign’s success depends on selecting the right prospective audience and creating a crisp, clean, powerful landing page. If you drive the right traffic to your site and have a landing page that gets people to perform your desired action, your CPA will remain nice and low.

Therefore, to get a clear picture of your marketing funnel, track both CPA and CR (conversion rate). If you notice your CR is low, optimize that and see if it gets your CPA to a more reasonable level. On the other hand, if you’ve already optimized your CR and your CPA is still too high, it may be necessary to look at different strategies.

How to Maximize Your Earnings with CPA in Advertising

If you want to try CPA marketing, here are seven proven steps to maximize your earnings and make your campaigns as successful as possible.

1. Know your audience

When optimizing your campaign for an action, you need to know your audience. For example, if you spend a fortune marketing your English product to a French audience, you will have a high cost per action. A French audience will likely need help understanding your advertisement, leading to a poor overall ROI.

Use Google Analytics, surveys, social media, polls, and other tools to gather as much information on your audience as possible. 

Who is buying your products, and perhaps equally important, why are they buying them? Use that data to create highly relevant offers that appeal to your target audience at their buying stage. Knowing your audience is how to make money with CPA marketing.

2. Optimize sources

Many beginner marketers make the mistake of relying too much on a single traffic source. They’ll put up some ads on Google and leave it at that. Or, they’ll buy some Facebook ads and accept whatever happens.

What works on Facebook may not work on Google and vice versa. These platforms often have entirely different demographics. TikTok appeals to a different audience than Instagram and both appeal to a different type of person than Pinterest. Paid traffic may not be well-suited for you as your customers search for your product via organic search. In that case, SEO efforts would give you your highest ROI.

Run with what works and scale back what doesn’t. And, of course, always use audience optimization with whatever platform you use. Don’t market to all people on Facebook – market to those most interested in your products!

3. Optimize your landing page

We touched upon this earlier, but the necessity to optimize your landing page is worth stating as much as possible. A poor landing page will tank any CPA campaign, even if it’s perfect in every other way.

First and foremost, your landing page must get all the basics right. Ensure it has clear call-to-action buttons. Words like “Subscribe” and “Buy” clarify what you want the user to do. Also, ensure your page loads fast and is well-optimized for mobile devices. Many of your customers will invariably look at your site on their phones. If it’s mobile-friendly, you’ll help sales; if it’s not, they’ll suffer.

Next, continuously test and tweak your page. Try different colors and verbiage. Minor tweaks can make a big difference. For example, Google and Microsoft can increase revenue by tens of millions a year by tweaking the tiniest aspects of their search experiences.

Lastly, communicate value propositions to prospective customers clearly and concisely. Include testimonials, reviews, and other details to create a sense of trust and improve conversion rates, lowering your overall cost per action.

4. Keep tweaking campaigns

Never settle, and keep tweaking campaigns. Do A/B testing frequently to test different versions of your webpage and see which ones perform better. You can even run A/B tests across segments to see how various demographics and behaviors affect campaign performance. 

Use that data to keep adjusting your campaigns, dropping anything that’s not working and scaling up anything that is. Don’t waste energy on campaigns that aren’t successful. Marketing optimization and pruning are the keys to success!

5. Track CPA over time

CPA may vary seasonally or even on certain days of the week. For example, if you sell snowblowers, you’ll likely have a much lower CPA when people are looking for snowblowers in the winter.

Tracking CPA over time also helps you spot anomalies. Continuing with the example above, if your business sells snow blowers, entering the winter season with a rising CPA would indicate a problem. Knowing your historical CPA lets you know when something is off so you can address it preemptively. Your CPA may be higher because you’ve switched hosts, and your landing page speed is slower. These issues often appear in CPA.

6. Scale your efforts

Focus your efforts on what is working and ditch what isn’t. When you identify something that works, run with it. Focus on data-driven marketing. Identify the campaigns and channels with low CPAs – the ones with the highest positive returns – and put all your efforts into them. Also, it’s more than just the campaigns that you can scale. You can also expand vertically by promoting complementary offers. Once you identify something that works, there’s no reason you can’t encourage offers similarly to your existing audience!

7. Stay informed and adapt

Lastly, CPA marketing is fluid and fast. You’ll have to stay informed and be willing to adapt. Industry blogs, forums, webinars, or online coursesand more are great learning methods. AI is also becoming a fantastic resource for teaching marketing methods and concepts and adapting campaigns by identifying patterns in ways that a human might not.

What is CPA in Marketing? Your Gateway to Effective, Efficient Campaigns

What is CPA in marketing? It’s your gateway to creating effective and efficient campaigns. By tracking the action and not the click or the impression, you’re paying for what really matters – a conversion. 

Whether getting someone to sign up for your newsletter, subscribe to your service, or pay for your product, CPA marketing is often the most effective way to achieve your goals. Maximizing your ROI is not about some secret or trick. Instead, it’s about thorough optimization, relentless perseverance, and adaptation.

At ChannelPulse, we bring together real-time campaign data that you can easily understand without any technical know-how. If your action is a click or conversion, you can track it with our product, and as long as you tag and set the information correctly, you can display it within ChannelPulse. 

Combining your ad spend reporting across multiple platforms allows you to optimize your earnings through knowledge, A/B testing, and the ability to identify and cancel underperforming campaigns. ChannelPulse is a way to turbocharge your CPA campaigns.

About the Author: Volha Yauseichyk

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